While residential property investment is a popular choice, some people choose to invest in commercial property instead. Commercial rentals are a broad category, including many different kinds of investments, such as offices, shopping centres, retail spaces, factories, or warehouses.
When you’re choosing a new investment property, you might wonder about whether it’s better to select a residential or commercial property. You might find yourself hearing different opinions from other property investors, who might have a strong preference for one or the other.
There are many factors involved in choosing a new addition to your property portfolio. In some cases, it might be that a commercial rental property suits your circumstances and priorities. In other cases, a residential property might be a more prudent choice.
Certain financial benefits are common to both residential and commercial properties. But, there are some key differences that might be worth considering.
Here are a few of the ways that commercial property investment generally differs from residential property investment:
Commercial Tenants May Pay Outgoings
When you own a commercial investment property, you can charge your tenants for outgoings. For example, rates and water bills can be paid by your tenants. This might reduce your overheads, in comparison to residential properties, where these costs are typically covered by the owner.
Leases Might Be Longer – and Vacancies Too
Many commercial properties have longer lease periods than residential properties. While it can be a positive to know that your tenant has a longer rental term, when they leave, it can also be harder to find the next tenant. You might, therefore, have a longer vacancy period before your next tenant signs. This trade-off is something to consider.
Costs Can Vary
Depending on the kind of commercial space you choose, purchasing the property might be significantly more or less expensive than a residential property. Maintenance costs can also be higher in some cases, though your lease agreement might mean that your tenant is responsible for these costs.
Different Knowledge is Needed
Of course, commercial tenants behave differently to residential tenants. So, there are different factors that can affect the performance of a commercial rental property. For example, certain economic conditions can have an impact. Plus, there are risks associated with the business performance of your tenant. Doing your research at the outset is an important step.
But, of course, every situation is different. If you’re considering making an investment decision, it’s wise to obtain financial advice for your particular situation.